Integrity Life Australia Limited, in the matter of Integrity Life Australia Limited
[2025] FCA 92
•19 February 2025
FEDERAL COURT OF AUSTRALIA
Integrity Life Australia Limited, in the matter of Integrity Life Australia Limited [2025] FCA 92
File number(s): NSD 1725 of 2024 Judgment of: JACKMAN J Date of judgment: 19 February 2025 Catchwords: INSURANCE — Application for confirmation of scheme of transfer — Pursuant to Life Insurance Act 1995 (Cth) s 194 — Where company is in breach of prudential capital requirements — Where company’s capacity to meet policy owner benefits is expected to be exhausted by November 2027 — Where transferring polices will be replaced by equivalent or nearest equivalent rights and benefits — Where scheme involves increases in premiums and reductions in benefits for some policy owners — Where policy owners would be worse-off if scheme not confirmed — Scheme’s adverse impact on policy owners not a bar to scheme confirmation — Exercise of discretion not constrained by adverse impact on policy owners — Where scheme’s primary purpose is providing ongoing cover to transferring policy owners and improving financial security — Where product transfer rules seek to minimise detriment to policy owners — Where dispensation orders substantially complied with — Where APRA supports the confirmation — The scheme should be confirmed
Legislation: Financial Sector (Transfer and Restructure) Act1999 (Cth)
Insurance Acquisitions and Takeovers Act1991 (Cth)
Life Insurance Act 1995 (Cth)
Life Insurance Regulations 2024 (Cth)
Insurance Companies Act 1982 (UK)
Cases cited: AIA Australia Limited, in the matter of AIA Australia Limited (No 2) [2023] FCA 1305
Asteron Life & Superannuation Limited, in the matter of Asteron Life & Superannuation Limited (No 3) [2021] FCA 1148; (2021) 394 ALR 89
Colonial Mutual Life Assurance Society Limited, in the matter of Colonial Mutual Life Assurance Society Limited [2021] FCA 394
Colonial Portfolio Services Ltd v Australian Prudential Regulation Authority [1999] FCA 1779; (2000) 11 ANZ Insurance Cases 90–103
In the Application of Commonwealth Insurance Holdings Ltd and the Colonial Mutual Life Assurance Society Ltd [2007] FCA 1012
Macquarie Life Limited, in the matter of Macquarie Life Limited [2022] FCA 1602
National Mutual Life Association of Australasia Limited v Challenger Life No 2 Limited [2009] FCA 1
OnePath Life Limited, in the matter of OnePath Life Limited (No 2) [2022] FCA 811
Re Barclays Bank plc [2018] EWHC 472 (Ch); [2018] 4 All ER 845
Re London Life Association Ltd (unreported, Ch D, Higgins J, 21 February 1989); [1989] Lexis Citation 1731
Re Prudential Assurance Company Limited and Rothesay Life plc [2020] EWCA Civ 1626; [2021] Lloyd’s Law Reports 623
Re Royal & Sun Alliance Life Assurance Ltd [2000] FCA 1259; (2000) 104 FCR 37
St Andrew’s Insurance (Australia) Pty Ltd, in the matter of St Andrew’s Insurance (Australia) Pty Ltd [2024] FCA 881
Division: General Division Registry: New South Wales National Practice Area: Commercial and Corporations Sub-area: Commercial Contracts, Banking, Finance and Insurance Number of paragraphs: 150 Date of hearing: 13 February 2025 Counsel for First Applicant Mr R Hollo SC Solicitors for First Applicant Hall & Wilcox Counsel for Second Applicant Mr J Potts SC Solicitors for Second Applicant Ashurst Counsel for APRA Ms A Lyons ORDERS
NSD 1725 of 2024 INTEGRITY LIFE AUSTRALIA LIMITED ABN 83 089 981 073
First Applicant
AIA AUSTRALIA LIMITED ABN 79 004 837 861
Second Applicant
ORDER MADE BY:
JACKMAN J
DATE OF ORDER:
19 FEBRUARY 2025
THE COURT ORDERS THAT:
1.Pursuant to section 194 of the Life Insurance Act 1995 (Cth), the scheme for the transfer of a part of the life insurance business of Integrity Life Australia Limited, the First Applicant, to AIA Australia Limited, the Second Applicant, in the form of Annexure A to these orders (Scheme), be confirmed without modification.
2.The Scheme takes effect on and from 12:01 am (AEST) on 1 March 2025.
3.The applicants pay the costs of the proceeding of the Australian Prudential Regulation Authority as agreed or, if no agreement can be reached, as assessed.
4.There be liberty to apply.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
ANNEXURE A
SCHEME UNDER PART 9 OF THE LIFE INSURANCE ACT 1995 (CTH) FOR THE TRANSFER OF RETAIL LIFE INSURANCE BUSINESS FROM INTEGRITY LIFE AUSTRALIA LIMITED ABN 83 089 981 073 TO AIA AUSTRALIA LIMITED ABN 79 004 837 861
1.Overview
(a)This is a scheme prepared pursuant to Part 9 of the Life Act and operates only on, and subject to, its confirmation by the Court (Scheme).
(b)ILAL has agreed to transfer its Retail Life Insurance Business to AIAA, subject to confirmation by the Court of this Scheme and the satisfaction of certain conditions.
(c)ILAL and AIAA are registered life companies under the Life Act. ILAL is incorporated in New South Wales and AIAA is incorporated in Victoria. The ultimate parent companies of ILAL and AIAA are IGHL and AIA Group Limited respectively.
(d)The objective of this Scheme is to transfer ILAL's Retail Life Insurance Business to AIAA.
(e)This Scheme is based on actuarial reports prepared by Mr Michael Dermody and Mr Nghiep Luu, the appointed actuaries of ILAL and AIAA respectively.
2.Interpretation
2.1Definitions
In this Scheme:
Adjustment Amount has the meaning given to it in the Transfer Deed.
AIAA means AIA Australia Limited ABN 79 004 837 861.
AIAA Policies means the life policies issued by AIAA.
AIAA Policy Owner means the owner of an AIAA Policy.
AIAA Policy Terms means the terms and conditions contained in the AIAA "Priority Protection" product disclosure statement and policy document (version 29 dated 12 May 2024) and any supplementary product disclosure statement and includes the AIAA Priority Protection Incorporated by Reference Material (Identification No. AIA07702-10/23) document.
APRA means the Australian Prudential Regulation Authority.
ASIC means the Australian Securities and Investments Commission.
Assumed Liabilities mean all the Liabilities of ILAL (whether arising or accruing before or after Completion) that relate to the Retail Life Insurance Business, including:
(a)the Life Policy Liabilities; and
(b)Liabilities under the Contracts,
but excluding the Excluded Liabilities.
Completion means completion of the transfer of the Retail Life Insurance Business from ILAL to AIAA.
Completion Payment has the meaning given to it in the Transfer Deed .
Conduct and Operational Liabilities means a Life Policy Liability that arises after the Scheme Effective Time from any act or omission of ILAL (including QBE Life (Australia) Limited (ACN 089 981 073) and CUNA Mutual Life Australia Limited (ACN 089 981 073) in contravention of a Law in relation to the sale, distribution, claims handling or administration of an ILAL Out of Force Life Policy, but does not include:
(a)a Liability to pay a claim made under an ILAL Out of Force Life Policy; or
(b)a Liability in respect of any open remediation or open complaint set made in respect of an ILAL Out of Force Life Policy as at the Scheme Effective Time.
Contracts means the Reinsurance Contracts and the Transferring Contracts.
Court means the Federal Court of Australia.
Diversa means Diversa Trustees Limited, the trustee of the Smartsave ‘Member’s Choice’ Superannuation Master Plan and ILAL’s Here For You Super Plan, an insurance-only division of OneSuper, and any successor trustee of those plans.
Ex-CUNA Policies means those policies listed in item number 2 of Schedule 1.
Ex-CUNA Policy Terms means the relevant terms and conditions of the Ex-CUNA Policies and comprising the relevant policy document, customer information brochure, policy information statement, cover document, product disclosure statement, policy schedule and application form (as applicable).
Ex-CUNA Policy Owner means an owner of an Ex-CUNA Policy.
Ex-CUNA Product Transfer Rules means the rules that govern the transfer of cover benefits under the Ex-CUNA Policy Terms to the AIAA Policy Terms that are set out in clause 4 of Schedule 2.
Duty means any stamp, transaction or registration duty or similar charge which is imposed by any Government Agency and includes any associated interest, penalty, charge or other amount which is imposed.
Excluded Assets means the following assets of the Retail Life Insurance Business at Completion:
(a)the IT systems and/or platforms that are used by ILAL in connection with the Retail Life Insurance Business;
(b)the Intellectual Property Rights used by the Retail Life Insurance Business at Completion;
(c)the Excluded Records; and
(d)the Tax Assets.
Excluded Liabilities means the following liabilities of the Retail Life Insurance Business:
(a)the liabilities arising under the Transfer Deed;
(b)the Conduct and Operational Liabilities; and
(c)the Tax Liabilities.
Excluded Records means any documents, information, data, books, customer records accounts and data (whether machine readable or in printed form) that do not relate to the ILAL Transferring Life Policies.
Existing AIAA Policies means the AIAA Policies immediately prior to the Scheme Effective Time.
Government Agency means any governmental, semi-governmental, administrative, fiscal, judicial or quasi-judicial body, department, commission, authority, tribunal, agency or entity, and includes APRA, ASIC, the Australian Financial Complaints Authority and the Australian Taxation Office.
GST has the meaning given in the GST Act.
GST Act means A New Tax System (Goods and Services Tax) Act 1999 (Cth).
IGHL means Integrity Group Holdings Limited ABN 33 159 865 666.
ILAL means Integrity Life Australia Limited ABN 83 089 981 073.
ILAL Policy means a life policy issued by ILAL.
ILAL Policy Owner means the owner of an ILAL Policy.
ILAL Out of Force Life Policy means the ILAL Transferring Life Policies issued by ILAL in respect of the product groups set out in items 2, 3 and 4 of Schedule 1 that have expired or lapsed before the Scheme Effective Time and does not include expired or lapsed Life Policies where benefits remain payable or in respect of which a person has a guaranteed renewal right as at the Scheme Effective Time.
ILAL Transferring Life Policies means all Life Policies issued by ILAL in respect of the product groups set out in Schedule 1 that are in-force or which have expired but under which benefits remain payable or may be payable, or in respect of which a person has a guaranteed renewal right as at the Scheme Effective Time, including any policy schedules, policy documents, product disclosure statements and supplementary product disclosure statements comprising such policies.
ILAL Transferring Life Policy Owner means an owner of an ILAL Transferring Life Policy.
Integrity Policies means those policies listed in item number 1 of Schedule 1.
Integrity Policy Owner means an owner of an Integrity Policy.
Integrity Policy Terms means the relevant terms and conditions of the Integrity Policies listed in item number 1 of Schedule 1 and comprising:
(a)the policy schedule or policy certificate issued in respect of each policy; and
(b)the "Integrity’s Here for You" policy document and product disclosure statement issued from time to time (including any supplementary product disclosure statements), as applicable.
Integrity Product Transfer Rules means the rules that govern the transfer of cover benefits under the Integrity Policy Terms to the AIAA Policy Terms that are set out in clause 3 of Schedule 2.
Intellectual Property Rights means all intellectual property rights throughout the world, whether registered or unregistered, including trade marks, designs, patents, circuit layouts, copyright and know how.
Investment Assets means the assets of ILAL's statutory fund that are referable to the ILAL Transferring Life Policies and comprise the Completion Payment plus the Adjustment Amount.
Law means any applicable statute, law, rule or regulation or code of practice, or any applicable guidance, directive, policy or procedure issued or adopted by a Government Agency.
Liabilities means any liability or obligation (whether actual, contingent or prospective), including any damage, loss, cost, charge and expense, and irrespective of when the acts, events or things giving rise to the liability or obligation occurred.
Life Act means the Life Insurance Act 1995 (Cth).
Life Policy has the meaning given in the Life Act.
Life Policy Liabilities means all Liabilities arising under or in respect of the ILAL Transferring Life Policies, including all accrued liabilities.
Loss means any losses, liabilities, damages, costs, charges and expenses and includes Tax and Duty.
Product Transfer Rules means the rules that govern the transfer of cover benefits under the Integrity Policy Terms and the Ex-CUNA Policy Terms to the AIAA Policy Terms that are set out in Schedule 2.
Records means all original and certified copies of the documents, information, data, books, customer records accounts and data (whether machine readable or in printed form) that are used in the Retail Life Insurance Business that relate to the ILAL Transferring Life Policies including but not limited to policy owner communications, underwriting and claims files, policy wordings and disclosure documents.
Reinsurance Contracts means the reinsurance contracts set out in Schedule 4.
Remediation Program has the meaning given to it in the Transfer Deed.
Retail Life Insurance Business means the life insurance business (within the meaning of the Life Act) conducted through ILAL Statutory Fund No.1 in respect of the ILAL Transferring Life Policies and comprising the Transferring Assets and the Assumed Liabilities but excluding all the Excluded Assets and Excluded Liabilities.
Scheme Confirmation Hearing Date means the hearing at which the Court makes orders to confirm the Scheme under section 194 of the Life Act.
Scheme Effective Time has the meaning given in clause 3.1.
Statutory Fund has the meaning given to that term in the Life Act.
Tax means any tax, levy, charge, excise, GST, impost, rates, Duty, fee, deduction, compulsory loan or withholding, which is assessed, levied, imposed or collected by any Government Agency and includes any interest, fine, penalty, charge, fee, expenses or other statutory charges or any other such amount imposed by any fiscal agency on or in respect of any of the above.
Tax Assets means all current Tax assets of ILAL referable to the Retail Life Insurance Business immediately after the Scheme Effective Time, including current Tax assets arising in connection with the Scheme.
Tax Liabilities means all current Tax liabilities of ILAL referable to the Retail Life Insurance Business immediately after the Scheme Effective Time, including current Tax liabilities arising in connection with the Scheme.
Transferring Assets means the assets of the Retail Life Insurance Business at Completion, including:
(a)the Investment Assets;
(b)the rights and benefits under the ILAL Transferring Life Policies;
(c)the rights and benefits under the Contracts;
(d)the Records,
but not including the Excluded Assets.
Transferring Contracts means each contract listed in Schedule 3.
Transfer Deed means the transfer deed between AIAA, ILAL and IGHL, dated 11 December 2024.
2.2Interpretation
Headings are for convenience only, and do not affect interpretation. The following rules also apply in interpreting this document, except where the context makes it clear that a rule is not intended to apply.
(a)A reference to:
(i)a legislative provision or legislation (including subordinate legislation) is to that provision or legislation as amended, re-enacted or replaced, and includes any subordinate legislation issued under it;
(ii)a document (including this document) or agreement, or a provision of a document (including this document) or agreement, is to that document, agreement or provision as amended, supplemented, replaced or novated;
(iii)a party to this document or to any other document or agreement includes a successor in title, permitted substitute or a permitted assign of that party;
(iv)a person includes any type of entity or body of persons, whether or not it is incorporated or has a separate legal identity, and any executor, administrator or successor in law of the person; and
(v)anything (including a right, obligation or concept) includes each part of it.
(b)A singular word includes the plural, and vice versa.
(c)A word which suggests one gender includes the other genders.
(d)If a word or phrase is defined, any other grammatical form of that word or phrase has a corresponding meaning.
(e)If an example is given of anything (including a right, obligation or concept), such as by saying it includes something else, the example does not limit the scope of that thing.
(f)A reference to a matter being, at a relevant time, to the knowledge of a person means that the matter is, at that time, within the actual knowledge of the person.
(g)A matter that is not known by a person is not to the knowledge of that person even if that matter would have been discovered if that person had made the enquiries that a reasonable person in that person's position would have made.
(h)A reference to information is to information of any kind in any form or medium, whether formal or informal, written or unwritten, for example, computer software or programs, concepts, data, drawings, ideas, knowledge, procedures, source codes or object codes, technology or trade secrets.
(i)The expression this document or this Scheme includes the agreement, arrangement, understanding or transaction recorded in this document, including any schedule to this document or this Scheme.
(j)A reference to time is a reference to Sydney, New South Wales, Australia time.
3.Transfer of the Retail Life Insurance Business
3.1Scheme Effective Time
(a)The Scheme Effective Time means 12.01 a.m. on the first calendar day of the month following the Scheme Confirmation Hearing Date, or such other date that the Court may specify as the commencement date of the Scheme should the Scheme be confirmed by the Court
(b)The Scheme becomes binding on all persons from the Scheme Effective Time.
3.2Transfer of the Retail Life Insurance Business
(a)At and from the Scheme Effective Time:
(i)the Retail Life Insurance Business is transferred from ILAL to AIAA, and AIAA obtains and assumes all rights and benefits (including the Transferring Assets), and all obligations and liabilities (including the Assumed Liabilities), of the Retail Life Insurance Business on the basis set out in this Scheme, including all rights, title, interests, liabilities, obligations, benefits and powers that have arisen, or may in the future arise, under any of the above;
(ii)AIAA is liable for and must assume and pay, and indemnify ILAL against Loss arising from, the Assumed Liabilities; and
(iii)AIAA is entitled to the benefit of the Transferring Assets and assumes responsibility for the Transferring Assets.
(b)The Excluded Assets and Excluded Liabilities are not included in the Scheme.
3.3Consequences of the transfer of the Retail Life Insurance Business
Without limiting clause 3.2, the matters set out in clauses 4 to 8 occur at the Scheme Effective Time unless otherwise stated.
4.Consequences of the transfer of the Retail Life Insurance Business
4.1Issuer of ILAL Transferring Life Policies
AIAA becomes the issuer of the ILAL Transferring Life Policies and ILAL ceases to be the issuer of the ILAL Transferring Life Policies.
4.2ILAL Transferring Life Policy Owners
(a)The ILAL Transferring Life Policy Owners cease to be ILAL Policy Owners and become AIAA Policy Owners.
(b)Subject to the effect of clause 4.3, the rights and liabilities of the ILAL Transferring Life Policy Owners will be the same in all respects as they would have been if:
(i)the applications on which the ILAL Transferring Life Policies were based had been made to, or accepted by, AIAA instead of ILAL; and
(ii)the ILAL Transferring Life Policies had originally been issued by AIAA instead of ILAL.
4.3Changes to the terms and conditions of the ILAL Transferring Life Policies
(a)The terms and conditions of each ILAL Transferring Life Policy listed in item numbers 3 and 4 of Schedule 1 will not change as a result of the Scheme except for the matters set out in clause 4.12(c) and (d) below.
(b)The terms and conditions of each ILAL Transferring Life Policy listed in item numbers 1 and 2 of Schedule 1 are replaced at and from the Scheme Effective Time by:
(i)the AIAA Policy Terms; and
(ii)a replacement AIAA policy schedule issued by AIAA on or as soon as practicable after the Scheme Effective Time,
in accordance with and subject to the Product Transfer Rules set out in Schedule 2.
4.4Assumption and release of policy liabilities
Subject to the effect of clause 4.3 and clause 4.7:
(a)AIAA assumes all liabilities and obligations of ILAL under, or in respect of, the ILAL Transferring Life Policies; and
(b)ILAL is released and discharged from all liabilities and obligations under, or in respect of, the ILAL Transferring Life Policies.
4.5Rights and benefits
Subject to the effect of clause 4.3, AIAA is entitled to all rights and benefits of ILAL under, or in respect of, the ILAL Transferring Life Policies, including but not limited to:
(a)the right to receive any fees payable under, or in respect of, the ILAL Transferring Life Policies;
(b)the right to receive premiums payable under, or in respect of, the ILAL Transferring Life Policies;
(c)the right to enforce all rights and remedies available under the ILAL Transferring Life Policies and applicable law in respect of any non-payment of such premiums or fees;
(d)the right to enforce all rights and remedies available under the ILAL Transferring Life Policies and applicable law, including in respect of any failure by an ILAL Transferring Life Policy Owner to comply with obligations regarding disclosure and misrepresentation; and
(e)any claims by way of subrogation or contribution.
4.6Authorities
All directions, authorities, mandates or instructions given to ILAL:
(a)to deduct premiums or fees payable in respect of the ILAL Transferring Life Policies (including by debiting a bank account, through automatic payroll deductions or through electronic bank transfer); or
(b)to disclose or obtain information in the course of carrying on the Retail Life Insurance Business,
are deemed to be given to AIAA instead of ILAL.
4.7Policy claims
For all ILAL Transferring Life Policies listed in Schedule 1
(a)Subject to the effect of clause 4.3 and sub-clauses 4.7(b) to (f), any person having a claim on or obligation to ILAL under, or in respect of, an ILAL Transferring Life Policy, has the same claim on or obligation to AIAA instead of ILAL.
For ILAL Transferring Life Policies listed in item numbers 1 and 2 of Schedule 1
(b)Claims that are made and notified under Integrity Policies or Ex-CUNA Policies prior to the Scheme Effective Time will be assessed, or will continue to be assessed, and paid by reference to the Integrity Policy Terms or the Ex-CUNA Policy Terms (as applicable) for the life of the claim.
(c)Claims made under Integrity Policies or Ex-CUNA Policies after the Scheme Effective Time that arise from an insured event that occurred prior to the Scheme Effective Time will be assessed by reference to the Integrity Policy Terms or the Ex-CUNA Policy Terms (as applicable).
For ILAL Transferring Life Policies listed in item number 1 of Schedule 1
(d)An insured life that suffers a relapse for the purpose of their Income Insurance cover under the Integrity Policy Terms will have their relapsed claim assessed and paid under the Integrity Policy Terms where:
(i)the original claim was made prior to the Scheme Effective Time; and
(ii)the relapse occurs within the period specified in the Integrity Policy Terms.
(e)If the Life Cover Reset, Critical Illness Reset or Critical Illness Relapse option is held under an Integrity Policy, and:
(i)a claim is made under Integrity Policy Terms prior to the Scheme Effective Time or clause 4.7(c) applies to the claim, for which a right to restore cover could be made, and
(ii)the date the Policy Owner could elect to restore cover under the relevant option occurs after the Scheme Effective Time,
then where the Policy Owner does elect to restore the relevant cover it will be restored under AIAA equivalent terms as outlined in Schedule 2, and all future claims will be assessed under AIAA’s Policy Terms.
(f)If the 14 Day Life Cover Reset option is held under an Integrity Policy, and:
(i)a claim is made under Integrity Policy Terms prior to the Scheme Effective Time or clause 4.7(c) applies to the claim, for which a right to restore cover could be made, and
(ii)the date the Policy Owner could elect to restore cover under this option occurs after the Scheme Effective Time,
then where the Policy Owner does elect to restore cover, such cover will be restored under the Integrity Policy Terms, and all future claims will be assessed under the AIAA Policy Terms.
(g)Capitalised terms that do not have a defined meaning in clause 2 above, have the meaning given to them in the Integrity Policy Terms.
4.8Proceedings
(a)Any proceedings in connection with an ILAL Transferring Life Policy that are in progress, pending, or that commence, whether by or against ILAL, in any court, tribunal or entity dealing with complaints, must be continued by or against AIAA instead of ILAL and AIAA must be substituted for ILAL as a party to those proceedings.
(b)Any judgment, order, award, determination or settlement in any proceeding described in clause 4.8(a) will have effect as if such judgment, order, award, determination or settlement had been made for or against AIAA.
4.9Applications
(a)Any pending application for an ILAL Transferring Life Policy which has not been accepted by ILAL at the Scheme Effective Time is, for all intents and purposes, to be treated as an application to AIAA, and any policy resulting from such an application takes effect as a AIAA Policy.
(b)All proposals, applications, declarations and representations made to ILAL on which any ILAL Transferring Life Policy or other life policy (whether issued or entered into by ILAL or AIAA) is based are taken to have been made to AIAA instead of ILAL.
4.10Commissions
AIAA:
(a)bears the obligation to pay commissions payable to any person in respect of an ILAL Transferring Life Policy from the Scheme Effective Time; and
(b)is entitled to seek repayment of commission (whether originally paid by AIAA or ILAL) in excess of the recipient's entitlement, instead of ILAL.
4.11Transferring Contracts
(a)AIAA assumes the position of ILAL under all Transferring Contracts as if AIAA was the original party to those contracts in place of ILAL. The Transferring Contracts will continue in full force and effect on this basis.
(b)Without limiting clause 4.11(a):
(i)AIAA assumes all rights, powers, privileges, and all liabilities and obligations of ILAL under the Transferring Contracts, whenever occurring or accruing;
(ii)AIAA assumes the position of ILAL under the Transferring Contracts in respect of any proceedings that are in progress, pending by, or against, ILAL in respect of the Contracts;
(iii)all references to ILAL in a Transferring Contract will be read as a reference to AIAA; and
(iv)all references to ILAL Statutory Fund No.1 in a Transferring Contract will be read as a reference to AIAA Statutory Fund No.1.
(c)ILAL is released and discharged from all obligations and liabilities under the Transferring Contracts, whenever occurring or accruing.
(d)Each Reinsurance Contract under which ILAL is a cedant will transfer to AIAA, with the same consequences as set out above in clauses 4.11(a) to 4.11(c) with respect to the Transferring Contracts.
4.12Consequences for ILAL Transferring Life Policies
(a)Subject to the effect of clause 4.3 and clause 4.7, AIAA assumes the position of ILAL under all ILAL Transferring Life Policies as if AIAA was the original party to those policies in place of ILAL. The ILAL Transferring Life Policies will continue in full force and effect on this basis.
(b)Without limiting clause 4.12(a) and subject to clause 3.2(b):
(i)AIAA assumes all rights, powers, privileges, and all liabilities and obligations of ILAL under the ILAL Transferring Life Policies (excluding Conduct and Operational Liabilities), whenever occurring or accruing; and
(ii)AIAA assumes the position of ILAL under the ILAL Transferring Life Policies in respect of any proceedings that are in progress, pending by, or against, ILAL in respect of the ILAL Transferring Life Policies.
(c)All references to ILAL in an ILAL Transferring Life Policy are replaced with AIAA.
(d)All references to ILAL Statutory Fund No.1 in an ILAL Transferring Life Policy will be read as a reference to AIAA Statutory Fund No.1.
(e)ILAL is released and discharged from all obligations and liabilities under the ILAL Transferring Life Policies, whenever occurring or accruing.
(f)The Transferring Life Policies will remain on foot and there will be no cancellation and reissue of the Transferring Life Policies as a result of the Scheme.
4.13Consequences for Existing AIAA Policies
The terms and conditions of the Existing AIAA Policies will not change as a result of the Scheme.
5.Assets and Liabilities
5.1ILAL Transferring Life Policies
Each ILAL Transferring Life Policy referable to ILAL Statutory Fund No.1 becomes a AIAA Policy referable to AIAA Statutory Fund No.1.
5.2Assets
The Investment Assets become assets of AIAA Statutory Fund No.1.
5.3Liabilities
The Assumed Liabilities referable to ILAL Statutory Fund No.1 become liabilities of the AIAA Statutory Fund No.1.
6.Conduct of the Retail Life Insurance Business at and from the Scheme Effective Time
(a)At and from the Scheme Effective Time, AIAA will maintain such policies and procedures as are required to enable it to conduct the Retail Life Insurance Business in a manner which is consistent with its legal and regulatory obligations and which satisfies the contractual rights and benefits, and the reasonable benefit expectations, of the ILAL Transferring Life Policy Owners.
(b)For the purposes of this clause 6, "policies and procedures" includes any policies and procedures relating to:
(i)the method of determining premium rates and charges;
(ii)underwriting and claims management;
(iii)the capital management framework;
(iv)the risk management framework; and
(v)remediation programs.
(c)AIAA must review its policies and procedures periodically to ensure that they remain appropriate.
(d)At and from the Scheme Effective Time, AIAA will conduct the remediation programs currently being conducted by ILAL as set out in Schedule 5 in accordance with the general principles specified in section 1.2 of the AIAA Remediation Standard, as set out in Schedule 6.
7.Implementation
AIAA and ILAL will do all such things and execute all such deeds, instruments, transfers or other documents as may be necessary or desirable to give full effect to the provisions of this Scheme and the transactions contemplated by them.
8.Costs of the Scheme
All costs, including any tax and stamp duty, associated with the transfer of the Retail Life Insurance Business will be paid by ILAL and AIAA and not directly by ILAL Transferring Life Policy Owners or AIAA Policy Owners.
9.Governing law
This Scheme is governed by the laws of New South Wales, Australia.
Schedule 1
ILAL Transferring Life Policies
The ILAL Transferring Life Policies are the policies issued under the following product names:
No.
Product name
1.
The Life Policies issued by ILAL under the product name "Integrity’s Here for You".
2.
The Life Policies that were originally issued by CUNA Mutual Insurance Society for life, term life cover, crisis recovery and accident insurance under the product names:
(a) MemberCare Life Insure Policy;
(b) MemberCare Term Life Insurance Plan/Term Life Cover; and
(c) MemberCare Term Life and Crisis Recovery Plan.
3.
The Life Policies that were originally issued by QBE Insurance (Australia) Ltd and ILAL for mortgage and loan protection cover under the product names:
(a) MemberCare Loan Insure;
(b) MemberCare Mortgage Insure;
(c) Mortgage Protection Insurance; and
(d) Loan Protection Insurance.
4.
The Life Policies that were originally issued by LFI Group Pty Ltd and QBE Life (Australia) Limited for mortgage and loan protection cover under the product names “Loan Protection Insurance” and “Mortgage Protection Insurance”.
Schedule 2
Product Transfer Rules for ILAL Transferring Life Policies
1The ILAL Transferring Life Policies whose terms and conditions are to be replaced
1.1The terms and conditions of each ILAL Transferring Life Policy as listed in:
(a)item number 1 of Schedule 1, referred to as Integrity Policies; and
(b)item number 2 of Schedule 1, referred to as Ex-CUNA Policies,
are to be replaced on the basis set out in this Schedule 2.
2The replacement terms and conditions for the ILAL Transferring Life Policies
2.1At the Scheme Effective Time:
(a)The Integrity Policy Terms and the Ex-CUNA Policy Terms are replaced by the AIAA Policy Terms and a replacement policy schedule issued by AIAA; and
(b)the AIAA Policy Terms will apply in accordance with and subject to the Integrity Product Transfer Rules or the Ex-CUNA Product Transfer Rules as applicable.
2.2Terms used in this Schedule 2 have the same meaning as set out in clause 2.1 of this Scheme document.
3Integrity Product Transfer Rules
3.1The Integrity Product Transfer Rules set out:
(a)the main policy benefits provided to Integrity Policy Owners under the Integrity Policy Terms;
(b)how these policy benefits will transfer to their equivalent replacement policy benefits under the AIAA Policy Terms; and
(c)some rules concerning premium changes and minimum premium requirements that are applicable to all ILAL Transferring Life Policies.
3.2Tables 1 to 9 contain a list of each of the benefits and features provided under an Integrity Policy and the rules that will determine which corresponding benefit and feature under the AIAA Policy Terms will be provided to Integrity Policy owners at and from the Scheme Effective Time.
3.3Integrity Policy Owners will only receive the benefits and features of the AIAA Policy Terms as outlined in Tables 1 to 9 below.
3.4Further to clause 3.3, Integrity Policy Owners will receive all built-in benefits as described in the AIAA Policy Terms under the specific cover set out in the tables below, as applicable. The Rider Benefits – being optional benefits provided at an additional cost – that are referred to in the AIAA Policy terms will not apply on transfer unless they are expressly provided for in the tables below.
3.5Integrity Policy Owners will not receive the Care Support Package Benefit in the form provided for under the Integrity Policy Terms, save for the specified benefits that are set out in the table below, or which are provided as built-in benefits under, the applicable AIAA Policy Terms.
3.6The amounts that are shown as being cover amounts in the policy schedule or policy certificate for an Integrity Policy will become corresponding sums insured under the AIAA Policy Terms, save that:
(a)where a Superannuation Contribution Option is held under Income Insurance for Integrity Policies; and
(b)the Superannuation Contribution Option transferring sum insured exceeds the maximum allowable sum insured under AIAA’s relevant superannuation benefit,
the balance of the sum insured will be added to the relevant AIAA income protection sum insured.
3.7Capitalised terms used in these Product Transfer Rules or the tables below have the meaning given to them in the Integrity Policy Terms or the AIAA Policy Terms, or as set out in clause 2.1 of this Scheme document, as the context requires.
3.8As soon as practicable after the Scheme Effective Time, AIAA will issue a replacement AIAA policy schedule to each Integrity Policy Owner in accordance with the Integrity Product Transfer Rules, as applicable, and incorporating, where applicable, any specific exclusions from the cover recorded in the policy schedule or policy certificate issued in respect of the Integrity Policy.
Table 1 - Life Cover
Integrity Policy Term benefit Integrity Policy Term
Replacement AIAA Policy Term
Where the Integrity Policy owner is an individual or a company and is not a superannuation fund Life Cover
· Life Cover. · Life Cover Ordinary Plan, Life Cover.
Life Cover and Care Support Package
(in respect to the benefit of Occupationally Acquired Needlestick Cover)
· Life Cover; and
· Care Support Package Benefit.
· If the insured life satisfies the criteria for “M” Occupation Category under the AIAA Policy Terms, the Policyowner will receive Life Cover Ordinary Plan, Life Cover and Needlestick Injury Rider Benefit.
· If the insured life does not satisfy the criteria for the ‘M’ Occupation Category under the AIAA Policy Terms, the Policyowner will receive Life Cover Ordinary Plan, Life Cover.
Where the Integrity Policy owner is Diversa or a self-managed superannuation fund Life Cover
· Life Cover · Life Cover Superannuation Plan, Life Cover.
Life Cover and Care Support Package
(in respect the benefit of Occupationally Acquired Needlestick Cover)
· Life Cover; and
· Care Support Package Benefit.
· If the insured life satisfies the criteria for “M” Occupation Category under the AIAA Policy Terms, the Policyowner will receive Life Cover Superannuation Plan, Life Cover with Superannuation PLUS Rider Benefit and Needlestick Injury Rider Benefit.
· If the insured life does not satisfy the criteria for “M” Occupation Category under the AIAA Policy Terms, the Policyowner will receive Life Cover Superannuation Plan, Life Cover.
Table 2 - TPD Cover
Integrity Policy Term benefit Integrity Policy Term
Replacement AIAA Policy Term
Where the Integrity Policy owner is an individual or a company and is not a superannuation fund Combined Benefit · TPD Combined Cover and Life Cover is held under the Integrity Policy as at the Scheme Effective Time; and
· there is no 14-day Life Cover Reset option on the TPD Cover.
· Life Cover Ordinary Plan, Life Cover and TPD Optional Rider Benefit.
· TPD Combined Cover and Life Cover is held under the Integrity Policy as at the Scheme Effective Time; and
· there is 14-day Life Cover Reset option on the TPD Cover.
· Life Cover Ordinary Plan, Life Cover and TPD Stand Alone cover TPD Stand Alone · TPD Stand Alone Cover is held under the Integrity Policy as at the Scheme Effective Time.
· Life Cover Ordinary Plan, TPD Stand Alone cover. TPD – Life Cover Reset · the Life Cover Reset Option under the TPD Combined Cover is held under the Integrity Policy as at the Scheme Effective Time.
· Life Cover Ordinary Plan, Life Cover and TPD Optional Rider Benefit with TPD Buy-back. TPD definition · Own Occupation TPD Cover is held under the Integrity Policy as at the Scheme Effective Time; or
· Any Occupation TPD Cover is held under the Integrity Policy as at the Scheme Effective Time.
· The TPD Own Occupation and TPD Any Occupation definitions under the AIAA Policy Terms will apply. Where the Integrity Policy owner is Diversa or a self-managed superannuation fund Combined Benefit
· TPD Combined Cover and Life Cover is held under the Integrity Policy as at the Scheme Effective Time; and
· There is no 14-day Life Cover Reset option on the TPD Cover
· Life Cover Superannuation Plan, Life Cover and TPD Optional Rider Benefit. · TPD Combined Cover is held under the Integrity Policy as at the Scheme Effective Time and is provided outside of a superannuation fund in a linked ordinary policy and.
· Life Cover is provided within a superannuation fund; and
· There is no 14-day Life Cover Reset option on the TPD Cover
· Life Cover Superannuation Plan, Life Cover with Superannuation PLUS Rider Benefit and TPD Optional Rider Benefit. · TPD Combined Cover and Life Cover is held under the Integrity Policy as at the Scheme Effective Time; and
· There is 14-day Life Cover Reset option on the TPD Cover.
· Life Cover Superannuation Plan, TPD Stand Alone cover.
· TPD Combined Cover is held under the Integrity Policy as at the Scheme Effective Time and is provided outside of a superannuation fund in a linked ordinary policy; and
· Life Cover is provided within a superannuation fund; and
· There is 14-day Life Cover Reset option on the TPD Cover
· Life Cover Superannuation Plan, Life Cover with Superannuation PLUS Rider Benefit and TPD Stand Alone Cover. Standalone TPD Cover · TPD Stand Alone Cover is held under the Integrity Policy as at the Scheme Effective Time.
Life Cover Superannuation Plan, TPD Stand Alone cover. Split TPD Cover · · If Split TPD Cover is held at the Scheme Effective Time. If TPD Stand Alone Cover applies (as described above) then:
· Life Cover Superannuation Plan, TPD Standalone and Maximiser Linked Benefit.
If TPD Optional Rider Benefit applies (as described above) then:
· TPD Optional Rider Benefit and Maximiser Linked Benefit.
TPD Life Cover Reset · the Life Cover Reset Option under the TPD Cover is held under the Integrity Policy as at the Scheme Effective Time. · Life Cover Superannuation Plan, TPD Optional Rider Benefit with TPD Buy-back.
TPD definition · Own Occupation TPD Cover is held under the Integrity Policy as at the Scheme Effective Time; or
· Any Occupation TPD Cover is held under the Integrity Policy as at the Scheme Effective Time.
The TPD Own Occupation and TPD Any Occupation definitions under the AIAA Policy Terms will apply.
Table 3 - Critical Illness
Integrity Policy Term benefit Integrity Policy Term
Replacement AIAA Policy Term
The policy owner of the Integrity Policy is an individual or a company and is not a superannuation fund. Combined Benefit · Critical Illness Combined Cover and Life Cover are held under the Integrity Policy as at the Scheme Effective Time. · Life Cover Ordinary Plan, Life Cover and Crisis Recovery Optional Rider Benefit. · Critical Illness Combined Cover is held as at the Scheme Effective Time, and:
· Life Cover is provided within a superannuation fund.
· Life Cover Superannuation Plan, Life Cover, Superannuation PLUS and Crisis Recovery Optional Rider Benefit. Stand Alone · Stand Alone Critical Illness Cover is held under the Integrity Policy as at the Scheme Effective Time. · Crisis Recovery Stand Alone Plan, Crisis Recovery Stand Alone.
Life Cover Reset · Life Cover Reset Option under the Critical Illness Cover is held under the Integrity Policy as at the Scheme Effective Time; and
· Life Cover is held outside superannuation.
· Life Cover Ordinary Plan, Life Cover and Crisis Recovery Optional Rider Benefit with Crisis Recovery Buy-back Rider Benefit. · Life Cover Reset Option under the Critical Illness Cover is held under the Integrity Policy as at the Scheme Effective Time; and
· Life Cover is held inside superannuation.
· Life Cover Superannuation Plan, Superannuation PLUS, Crisis Recovery Optional Rider Benefit with Crisis Recovery Buy-back Rider Benefit. Critical Illness Reset or Critical Illness Relapse · the Critical Illness Reset or the Critical Illness Relapse Option is held under the Critical Illness cover under the Integrity Policy as at the Scheme Effective Time and
· Life Cover is held outside superannuation.
· Life Cover Ordinary Plan, Life Cover, Crisis Recovery Optional Rider Benefit with Crisis Recovery Buy-back Rider Benefit and Crisis Reinstatement Rider Benefit.
· the Critical Illness Reset or the Critical Illness Relapse Option is held under the Critical Illness cover under the Integrity Policy as at the Scheme Effective Time and ;
· Life Cover is held inside superannuation.
· Life Cover Superannuation Plan, Life Cover, Superannuation PLUS and Crisis Recovery Optional Rider Benefit with Crisis Recovery Buy-back Rider Benefit and Crisis Reinstatement Rider Benefit.
· The Critical Illness Reset or the Critical Illness Relapse Option is held under the Stand Alone Critical Illness cover under the Integrity Policy as at the Scheme Effective Time.
· Crisis Recovery Stand Alone Cover with Crisis Reinstatement Rider Benefit.
Table 4 - Income Insurance (for Integrity Policies with a PDS that has a date of issue on or after 1 October 2021)
Integrity Policy Term benefit Integrity Policy Term
Replacement AIAA Policy Term The policy owner of the Integrity Policy is an individual or a company and is not a superannuation fund. Income Insurance Cover with an Income Replacement Ratio (IRR) of 50%, 60% or 70% · an IRR of 50%, 60% or 70% of Monthly Earnings is held under the Income Insurance Cover on the Integrity Policy as at the Scheme Effective Time.
· Income Protection Plan, Income Protection CORE Flat 70% Option and Complimentary Income Protection CORE Extras.
Claim Benefit Indexation Option · · Claim Benefit Indexation Option is held under the Income Insurance Cover on the Integrity Policy as at the Scheme Effective Time. · Income Protection Plan, Income Protection CORE Flat 70% Option and Complimentary Income Protection CORE Extras and Claim Escalation benefit.
Superannuation Contribution Option · Superannuation Contribution Option is held under the Income Insurance Cover on the Integrity Policy as at the Scheme Effective Time. · Income Protection Plan, Income Protection CORE Flat 70% Option and Complimentary Income Protection CORE Extras and Retirement Protector benefit.
Waiting Period
· the Waiting Period held under the Income Insurance Cover on the Integrity Policy as at the Scheme Effective Time is 30 days, 60 days, 90 days or 2 years.
· a corresponding 30 day, 60 day, 90 day or 2 year Waiting Period under the AIAA Policy Terms will be applied.
· the Waiting Period held under the Income Insurance Cover on the Integrity Policy as at the Scheme Effective Time is 180 days or 1 year.
· a Waiting Period of 90 days under the AIAA Policy Terms will apply. Benefit Period
· the Benefit Period held under the Income Insurance Cover on the Integrity Policy as at the Scheme Effective Time is 2 years, 5 years or to age 65. · a corresponding 2 year, 5 year or to age 65 Benefit Period under the AIAA Policy Terms will apply.
Where the Integrity Policy owner is Diversa or a self-managed superannuation fund Income Insurance Cover with an Income Replacement Ratio (IRR) of 50%, 60% or 70% · an IRR of 50%, 60% or 70% of Monthly Earnings is held under the Income Insurance Cover on the Integrity Policy as at the Scheme Effective Time.
· Superannuation Income Protection Plan, Income Protection CORE Flat 70% Option; and
· Complimentary Income Protection CORE Extras
Split Income Insurance
· Split Income Insurance is held under the Income Insurance Cover on the Integrity Policy as at the Scheme Effective Time.
· Superannuation Income Protection Plan, Income Protection CORE Flat 70% Option; and
· Complimentary Income Protection CORE Extras
Claim escalation · Claim Benefit Indexation Option is held under the Income Insurance Cover on the Integrity Policy as at the Scheme Effective Time · Superannuation Income Protection Plan, Income Protection CORE Flat 70% Option and Complimentary Income Protection CORE Extras and Claim Escalation Rider Benefit.
Waiting period
· the Waiting Period held under the Income Insurance Cover on the Integrity Policy as at the Scheme Effective Time is 30 days, 60 days, 90 days or 2 years
· a corresponding 30 day, 60 day, 90 day or 2 year Waiting Period under the AIAA Policy Terms will apply.
· the Waiting Period held under the Income Insurance Cover on the Integrity Policy as at the Scheme Effective Time is 180 days or 1 year.
· a Waiting Period of 90 days under the AIAA Policy Terms will apply. Benefit Period
· The Benefit Period held under the Income Insurance Cover on the Integrity Policy as at the Scheme Effective Time is 2 years, 5 years or to age 65. · a corresponding 2 year, 5 year or to age 65 Benefit Period under the AIAA Policy Terms will apply.
Table 5- Income Insurance (for Integrity Policies with a PDS that has a date of issue on or before 1 April 2021)
Integrity Policy Term benefit Integrity Policy Term
Replacement AIAA Policy Term
The policy owner of the Integrity Policy is an individual or a company and is not a superannuation fund. Income Insurance · Income Insurance Cover is held under an Integrity Policy as at the Scheme Effective Time and where:
· Superannuation Contribution Option is not held; and
· neither of the Care Support Package Benefit nor the Specified Injuries and Specified Medical Conditions Benefit is also held.
· Income Protection Plan, Advantage Optional and Claim Escalation benefit. · Income Insurance Cover is held under an Integrity Policy as at the Scheme Effective Time and where:
· Superannuation Contribution Option is not held; and
· one or both of the Care Support Package Benefit and the Specified Injuries and Specified Medical Conditions Benefit is also held.
· Income Protection Plan, PLUS Optional and Claim Escalation benefit. · Income Insurance Cover is held under an Integrity Policy as at the Scheme Effective Time and where:
· Superannuation Contribution Option is held; and
· neither of the Care Support Package Benefit nor the Specified Injuries and Specified Medical Conditions Benefit is also held.
· Income Protection Plan, Advantage Optional, Retirement Optimiser and Claim Escalation benefit. · Income Insurance Cover is held under an Integrity Policy as at the Scheme Effective Time and where:
· Superannuation Contribution Option is held; and
· one or both of the Care Support Package Benefit and the Specified Injuries and Specified Medical Conditions Benefit is also held.
· Income Protection Plan, PLUS Optional, Retirement Optimiser and Claim Escalation benefit. Waiting period
· the Waiting Period held under the Income Insurance Cover on the Integrity Policy as at the Scheme Effective Time is 30 days, 60 days, 90 days, 1 year or 2 years.
a corresponding 30 day, 60 day, 90 day, 1 year or 2 year Waiting Period under the AIAA Policy Terms will apply.
· the Waiting Period held under the Income Insurance Cover on the Integrity Policy as at the Scheme Effective Time is 180 days. · a Waiting Period of 90 days under the AIAA Policy Terms will apply. Benefit Period
· · the Benefit Period held under the Income Insurance Cover on the Integrity Policy as at the Scheme Effective Time is 2 years, 5 years or to age 65 or age 70. · a corresponding 2 year, 5 year or to age 65 or age 70 Benefit Period under the AIAA Policy Terms will apply, save that:
o those persons who are classified under the AIAA Policy Terms as being under Occupation Category B1 (being those occupations not classified as white collar and which may involve some very light manual work), who have a Benefit Period to age 70 under the Integrity Policy Terms, will have a reduced Benefit Period under the AIAA Policy Terms to age 65.
Where the Integrity Policy owner is Diversa or a self-managed superannuation fund Income Insurance
· Income Insurance Cover is held under an Integrity Policy as at the Scheme Effective Time and where:
· Superannuation Contribution Option is not held; and
· neither of the Care Support Package Benefit nor the Specified Injuries and Specified Medical Conditions Benefit is also held.
· Superannuation Income Protection Plan, Income Protection, Super Extras, Advantage Optional and Claim Escalation benefit. · Income Insurance Cover is held under an Integrity Policy as at the Scheme Effective Time and where:
· Superannuation Contribution Option is not held; and
· one or both of the Care Support Package Benefit and the Specified Injuries and Specified Medical Conditions Benefit is also held.
· Superannuation Income Protection Plan, Income Protection, Super Extras, PLUS Optional and Claim Escalation benefit. · Income Insurance Cover is held under an Integrity Policy as at the Scheme Effective Time and where:
· Superannuation Contribution Option is held; and
· neither the Care Support Package Benefit nor the Specified Injuries and Specified Medical Conditions Benefit is also held.
· Superannuation Income Protection Plan, Income Protection, Super Extras, Advantage Optional, Claim Escalation benefit and Retirement Optimiser benefit. · Income Insurance Cover is held under an Integrity Policy as at the Scheme Effective Time and where:
· Superannuation Contribution Option is held; and
· one or both of the Care Support Package Benefit and the Specified Injuries and Specified Medical Conditions Benefit is also held.
· Superannuation Income Protection Plan, Income Protection, Super Extras, PLUS Optional, Claim Escalation benefit and Retirement Optimiser benefit. Waiting Period · the Waiting Period held under the Income Insurance Cover on the Integrity Policy as at the Scheme Effective Time is 30 days, 60 days, 90 days, 1 year or 2 years;
· a corresponding 30 day, 60 day, 90 day, 1 year or 2 year Waiting Period under the AIAA Policy Terms will apply.
· the Waiting Period held under the Income Insurance Cover on the Integrity Policy as at the Scheme Effective Time is 180 days. · a Waiting Period of 90 days under the AIAA Policy Terms will apply. Benefit Period
· the Benefit Period held under the Income Insurance Cover on the Integrity Policy as at the Scheme Effective Time is 2 years, 5 years or to age 65 or age 70. · a corresponding 2 year, 5 year or to age 65 or age 70 Benefit Period under the AIAA Policy Terms will apply, save that:
o those persons who are classified under the AIAA Policy Terms as being under Occupation Category B1 (being those occupations not classified as white collar and which may involve some very light manual work), who have a Benefit Period to age 70 under the Integrity Policy Terms, will have a reduced Benefit Period under the AIAA Policy Terms to age 65.
Basis of Cover
· the Basis of Cover held under the Income Insurance Cover on the Integrity Policy as at the Scheme Effective Time is Indemnity 12 months. · Indemnity cover.
· the Basis of Cover held under the Income Insurance Cover on the Integrity Policy as at the Scheme Effective Time is Indemnity 36 months. · Extended Indemnity cover. · the Basis of Cover held under the Income Insurance Cover on the Integrity Policy as at the Scheme Effective Time is Agreed Value. · Agreed Value cover. Table 6- Premium rates
Integrity Policy Premium Type
Replacement AIAA Policy Premium Type
· All of the insurance cover held under the Integrity Policy as at the Scheme Effective Time has a Stepped Premium structure.
· a Stepped premium structure will apply.
· All of the insurance cover held under the Integrity Policy as at the Scheme Effective Time has a Level Premium structure · a Level premium structure will apply. Where there is an applicable policy term, AIAA will calculate the Level premium to match the Level Premium payable under the Integrity Policy term. Where the AIAA Policy term provided is in addition to the existing Integrity Policy term, AIAA will calculate the AIAA premium based on the entry age as at the Integrity Policy.
· If the insurance cover held under the Integrity Policy as at the Scheme Effective Time has a combination of Stepped Premium and Level Premium structure.
· a Level premium structure will apply. For Stepped premium converting to Level premium, AIAA will use the insured life age at next birthday at the start of their cover with Integrity to calculate level premium rates. Premium changes and minimum premium requirements (applicable to all ILAL Transferring Policies)
1. AIAA will not apply any new premium rate changes introduced during 2025 to its Priority Protection policyholders as a whole to the ILAL Transferring Life Policies.
2. AIAA will waive its $300 minimum premium requirement for all ILAL Transferring Life Policies at the date of transfer and for subsequent Policy Anniversary premium calculations. This waiver will cease to apply if the cover is changed following the Scheme Effective Time.
3. The new premium rates for the ILAL Transferring Life Policies will take effect from the first date of payment following the Scheme Effective Time.
Table 7 – Adviser Commission Discounts impacting Premium Rates
Commission Discounts
The following table sets out the rules that will apply to transfer existing adviser commission discounts that apply to the Integrity Policies on and after the Scheme Effective Time when they become AIAA Policies.
Integrity Policy Premium Discounts for Hybrid Commission Arrangements AIAA Policy Premium Discounts for Hybrid Commission Arrangements 0.0%
P100 - 0.0%
2.5%
P90 – 10%
5.0%
7.5%
P85 – 15%
10.0%
12.5%
P80 – 20%
15.0%
17.5%
20.0%
22.5%
P70 – 30%
25.0%
Integrity Policy Premium Discounts for Level Commission Arrangements AIAA Policy Premium Discounts for Level Commission Arrangements 0.0% P100 - 0.0% 2.5% P95 – 10% 5.0% 7.5% P85 – 15% 10.0% P80 – 20% 12.5% 15.0% 17.5% P70 – 30% 20.0%
22.5%
25.0%
Other Premium Discounts
Subject to meeting AIA’s qualification rules (as applicable), Integrity Life transferring policies may receive the following listed discounts:
- Bundled discount;
- Lump Sum Bundled discount; and
- Preferred adviser discount provided under Integrity Life’s Here For You policy.
No other discounts will apply on transfer.
Table 8 – Consumer Price Increase (CPI)
Integrity Policy Term
Replacement AIAA Policy Term
· Any of the insurance cover held under the Integrity Policy as at the Scheme Effective Time has a CPI Rate increase applicable to it.
· CPI Increase will apply to all covers in accordance with Benefit Indexation under the AIAA Policy Terms.
Table 9 - Occupation categories
Integrity Policy Term Occupation Class
Replacement AIAA Policy Term Occupation Category
· 1- Professional, other than medical professional occupations
· A1 · 1- White
· A2 · 2 - Light Blue
· B1 · 3 - Blue · C1 · 4 - Heavy Blue
· D · 5 - Red
· E · Medical professional occupations, comprising:
Anaesthetist Cardiologist - non surgeon Cardiologist - surgeon Clinical Psychologist Counsellor (psychology) Dental Practitioner Dental Surgeon Dentist Dermatologist Doctor Gastroenterologist General Medical Practitioner General Practitioner Gynaecologist Medical Practitioner Medical Officer Neurosurgeon Obstetrician Oncologist Ophthalmologist Orthodontist Orthopaedic Surgeon Paediatrician Pathologist Periodontist Physician - Consultant, non-surgeon Psychiatrist Psychiatrist – Consultant Psychologist Psychotherapist (qualified) Radiologist Radiologist – Consultant Rheumatologist Specialist Physician Surgeon Urologist - surgeon Veterinarian · M 4Ex-CUNA Product Transfer Rules
4.1The Ex-CUNA Product Transfer Rules set out:
(a)the main policy benefits provided to Ex-CUNA Policy Owners under the Ex-CUNA Policy Terms; and
(b)how these policy benefits will transfer to their equivalent replacement policy benefits under the AIAA Policy Terms.
4.2Tables 1 and 2 contain a list of each of the benefits and features provided under a Ex-CUNA Policy and the rules that will determine which corresponding benefit and feature under the AIAA Policy Terms will be provided to Ex-CUNA Policy Owners at and from the Scheme Effective Time.
4.3Benefits and features of the AIAA Policy Terms are only to be provided to Ex-CUNA Policy Owners to the extent that they are expressly referred to in Tables 1 and 2.
4.4Further to clause 4.3, Ex-CUNA Policy Owners will receive all built-in benefits as described in the AIAA Policy Terms under the specific cover set out in the Replacement AIAA Policy Term in the Tables below, as applicable. The Rider Benefits – being optional benefits at an additional cost – that are referred to in the AIAA Policy terms will not apply on transfer. Where an accidental death benefit is provided under an Ex-CUNA Policy, that benefit will not be provided under the AIAA Policy Terms.
4.5The amounts that are shown as the sum insured for benefits (other than accidental death) in the policy schedule or policy certificate for an Ex-CUNA Policy will become corresponding Sums Insured under the AIAA Policy Terms.
4.6Capitalised terms used in these Product Transfer Rules or the tables below have the meaning given to them in the EX-CUNA Policy Terms or the AIAA Policy Terms, or as set out in clause 2.1 of this Scheme document, as context requires.
4.7As soon as practicable after the Scheme Effective Time AIAA will issue a replacement AIAA policy schedule to each owner of an EX-CUNA Policy in accordance with the Ex-CUNA Product Transfer Rules, as applicable, and incorporating, where applicable, any specific exclusions from cover recorded in the policy schedule or policy certificate issued in respect of the Ex-CUNA Policy.
Table 1 - Life Cover
Ex-CUNA Policy benefit Ex-CUNA Policy Term
Replacement AIAA Policy Term
Life Cover / Term Life
· Life cover or term life cover held under the Ex-CUNA Policy as at the Scheme Effective Time · Life Cover Ordinary Plan, Life Cover.
Table 2- Premium rates
Ex-CUNA Policy Premium Type
Replacement AIAA Policy Term Premium Type
· All Ex-CUNA Policies as at the Scheme Effective Time.
· a Stepped premium structure will apply.
Premium changes and minimum premium requirements
Subject to meeting AIA’s qualification rules (as applicable), Ex-CUNA transferring policies may receive the following listed discount;
- Lump Sum Bundled discount;
No other discounts will apply on transfer.
Schedule 3
Transferring Contracts
No.
Contract
Parties
1.
Promoter Agreement dated 12 April 2019
ILAL and Diversa Trustees Limited
2.
Insurance Service Level Agreement dated 12 April 2019
ILAL and Diversa Trustees Limited
3.
Outsourced Services Agreement dated 22 December 2017 as amended and restated by the Amendment and Restatement Deed dated 6 February 2025
ILAL and QBE Management Services Pty Ltd
Schedule 4
Reinsurance Contracts
No.
Contract
Parties
1.
Retail Business Reinsurance Agreement dated 28 February 2019 (2019 HLRA Treaty)
ILAL and Hannover Life Re of Australasia Limited
2.
Addendum No.1 to the 2019 HLRA Treaty dated 4 June 2021
ILAL and Hannover Life Re of Australasia Limited
3.
Addendum No.2 to the 2019 HLRA Treaty dated 28 January 2021
ILAL and Hannover Life Re of Australasia Limited
4.
Addendum No.3 to the Life, TPD, GSC Proportional Reinsurance Agreement Covering Corporate Group Insurance dated 28 January 2021
ILAL and Hannover Life Re of Australasia Limited
5.
Addendum No.3 to the 2019 HLRA Treaty dated 6 February 2025
ILAL and Hannover Life Re of Australasia Limited
6.
Addendum No.4 to the 2019 HLRA Treaty dated 6 February 2025
ILAL and Hannover Life Re of Australasia Limited
7.
Addendum No.5 to the 2019 HLRA Treaty dated 6 February 2025
ILAL and Hannover Life Re of Australasia Limited
8.
Addendum No.6 to the 2019 HLRA Treaty dated 6 February 2025
ILAL and Hannover Life Re of Australasia Limited
9.
Addendum No.7 to the 2019 HLRA Treaty dated 6 February 2025
ILAL and Hannover Life Re of Australasia Limited
10.
Addendum No.8 to the 2019 HLRA Treaty dated 7 February 2025
ILAL and Hannover Life Re of Australasia Limited
11.
Individual Life Reinsurance Treaty (AU-INT-A-B-I-22) dated 10 October 2022 (2022 RGA Treaty)
ILAL and RGA Reinsurance Company of Australia Limited
12.
Addendum 1 to the 2022 RGA Treaty (AU-INT-A-B-I-22-1) dated 31 March 2023
ILAL and RGA Reinsurance Company of Australia Limited
13.
Addendum 2 to the 2022 RGA Treaty (AU-INT-A-B-I-22-2) dated 11 February 2025
ILAL and RGA Reinsurance Company of Australia Limited
Schedule 5
ILAL Remediation Programs
· Refunds not yet processed incident remediation
Schedule 6
Extract of AIAA Remediation Standard
5General Principles
5.1Remediation must:
(a)commence promptly and ensure conflict of interest controls are in line with the Conflicts of Interest Standard;
(b)return affected customers as closely as possible to the position they would have otherwise been in had the misconduct or other failure not occurred;
(c)give customers the benefit of the doubt and minimise the risk of under- compensation ie. ensure customers do not incur fees or charges as a result of the Remediation;
(d)use best endeavours to identify all customers impacted by the Remediation issue;
(e)use best endeavours to identify customers in hardship or vulnerable circumstances and consider if any special treatment or immediate action is appropriate for them;
(f)understand and be accountable for addressing the root cause(s) of the Remediation issue;
(g)make the Remediation process easy for customers by minimising complexity and, where possible, limiting their involvement in the process;
(h)adhere to the relevant internal dispute resolution obligations and timeframes when a customer complains about the Remediation issue;
(i)ensure customers are made aware of AIAA’s external dispute resolution scheme if they are not satisfied with the outcome provided to them, and provide details of the external dispute resolution scheme;
(j)treat all impacted customers in a consistent manner, to the extent possible;
(k)ensure that AIAA does not profit from a Remediation issue;
(l)ensure the determination of whether a customer is impacted by the Remediation issue and the extent of any impact is assessed in an objective, straightforward and consistent manner; and
(m)monitor and improve processes and methods as required to ensure that each Remediation is executed in line with the AIAA Remediation Standard.
5.2Defined terms in this Schedule 6 have the meanings ascribed to them in the AIAA Remediation Standard.
REASONS FOR JUDGMENT
JACKMAN J:
Introduction
In these proceedings the applicants, Integrity Life Australia Limited (ILAL) and AIA Australia Limited (AIAA), make an application under s 193 of the Life Insurance Act 1995 (Cth) (Life Act) for an order under s 194 of the Life Act confirming a scheme for the transfer of part of the life insurance business of ILAL to AIAA (Scheme). The terms and details of the Scheme are stipulated in the scheme document (Scheme document).
On 17 December 2024, I made orders pursuant to s 191(5) of the Life Act dispensing with the need for compliance with s 191(2)(c) of the Life Act insofar as it requires a summary of the Scheme approved by APRA (Scheme Summary) to be given to owners of policies issued by the applicants affected by the Scheme, provided that the applicants carry out certain steps (Dispensation Orders). As set out below, the steps required under the Dispensation Orders and the procedural requirements under the Life Act have been substantially complied with.
The Scheme is based on actuarial reports prepared by Mr Michael Dermody, the appointed actuary of ILAL, dated 12 December 2024 (ILAL Actuarial Report) and Mr Nghiep Luu, the appointed actuary of AIAA, dated 12 December 2024 (AIAA Actuarial Report). Mr David Goodsall, an independent actuary, has also prepared a report on the Scheme dated 12 December 2024 (Independent Actuarial Report). Each of the actuaries has updated his report by further evidence in the form of an affidavit.
Background to the Scheme and the life insurance business of the applicants
Life Insurance Business of ILAL
ILAL is authorised under the Life Act to conduct life insurance and conducts this business in Australia. It is a wholly owned subsidiary of Integrity Group Holdings Limited (IGHL) and operates IGHL’s life insurance business. IGHL is a registered non-operating holding company that is privately owned by a number of local and offshore investors. Leadenhall Capital Partners and Schroder Investment Management Limited are its majority shareholders.
ILAL was acquired by IGHL in December 2017 from QBE Insurance Group. ILAL was formerly known as:
(a)QBE Life (Australia) Limited (QBE Life) from March 2012 to January 2018; and
(b)CUNA Mutual Life Australia Limited (CUNA) before March 2012.
ILAL has a single statutory fund that contains ordinary and superannuation life business, referred to as Statutory Fund No 1 (ILAL SF1). ILAL also operates a shareholders’ fund which is maintained separately from ILAL SF1.
ILAL carries on three main categories of life insurance business as follows:
(a)individual life risk business. This comprises death, total and permanent disablement (TPD), trauma and income protection cover, as follows:
(i)life policies sold under the “Integrity’s Here for You” product disclosure statement and policy document (Integrity Policies) which were distributed through financial advisers; and
(ii)life policies sold under the “Medibank” and “ahm” brands (Medibank Policies) which were distributed directly;
(b)group risk business (Group Risk Business). This comprises group insurance schemes where cover is provided for group life insurance (death and TPD) and group salary continuance. This business was distributed through a network of brokers, superannuation trustees and commercial partnerships and comprises the following portfolios:
(i)corporate group life policies which include the Australian Retirement Trust superannuation fund’s corporate plans and Marsh Pty Limited’s Mercer Marsh Benefits (Marsh) small and midsize enterprises corporate plans;
(ii)group life policies sold under the “Coverforce” brand; and
(iii)group life policies for small business sold under the “Five+” brand; and
(c)legacy business from QBE Life and CUNA. This comprises the following products that have been closed to new business since soon after the acquisition of QBE Life:
(i)loan and mortgage protection insurance jointly issued by QBE Life and each of QBE Insurance (Australia) Limited and LFI Group Pty Limited (Ex-QBE CCI Policies); and
(ii)life, term life cover, crisis recovery and accident insurance cover issued by CUNA (Ex-CUNA Policies).
The life business which is proposed to be transferred under the Scheme is that referable to the Integrity Policies, the Ex-QBE CCI Policies and the Ex-CUNA Policies (Transferring Policies). This business is referred to and defined in the Scheme document as the “Retail Life Insurance Business” (Retail Life Insurance Business). The other business of ILAL, including the remaining group life insurance sold under the Marsh corporate plans and the Five+ brand, as well as the Medibank Policies are not the subject of the proposed Scheme.
Life Insurance Business of AIAA
AIAA is authorised to conduct life insurance under the Life Act. Since 28 February 2009, AIAA has been a wholly owned subsidiary of AIA Company Limited, a company incorporated in Hong Kong. AIAA is part of the AIA Group which comprises the largest independent publicly listed Pan-Asian life Insurance group. It has a presence in 18 markets and has total assets of US$286 billion as of 31 December 2023. The AIA Group services the holders of more than 42 million individual policies and over 18 million participating members of group insurance schemes.
The AIA Group has operated in Australia since 1972. AIAA provides life insurance coverage to over 2.5 million people in Australia and employs approximately 1,850 people in Australia.
AIAA’s life insurance business is managed within two statutory funds: Statutory Fund No 1 for non-investment linked business (AIAA SF1) and Statutory Fund No 2 for investment linked ordinary business (AIAA SF2). AIAA operates, among other life insurance business, individual lump sum (death, disablement, trauma and income protection insurance) business, with a gross annual premium in-force of $1,511 million as at 31 December 2023, and group lump sum (death, disablement, trauma and income protection insurance) business, with a gross annual premium in-force of $2,068 million as at 31 December 2023.
As at 31 December 2023, AIAA SF1 had net assets of $1,325 million and a Capital Adequacy Multiple (CAM) of 212%. As at 31 December 2023 AIAA, as a whole, had net assets of $2,226 million and a CAM of 223%. As at 31 December 2024, AIAA SF1 had net assets of $1,232 million and a CAM of 182%. As at 31 December 2024, AIAA, as a whole, had net assets of $2,116 million and a CAM of 183%.
ILAL’s entry into run-off and its current financial position
Following the acquisition of QBE Life from QBE Insurance Group, ILAL’s plan under new management and ownership was to cease to write the legacy business from QBE Life and CUNA, and to expand into retail advised and group insurance business channels. This expansion involved ILAL offering the Integrity Policies and the Group Risk Business referred to above.
Over time, ILAL was unable to achieve the targets and sales volumes in its business plans so as to grow and operate at a large enough scale to be profitable. This lack of growth stemmed from substantial reductions in both the number of financial advisers providing risk advice and the number of lives insured across all of the sales channels. Not being able to achieve sufficient scale required significant ongoing investment from ILAL’s institutional investors that could not be maintained.
Attempts were made during 2023 to make ILAL’s financial position more sustainable. This involved exploring options to recapitalise the business from existing and new shareholders, selling IGHL’s life insurance business and restructuring ILAL’s business (including migrating existing business through a platform operated by the administrator of the Medibank portfolio and closing the retail advised business while continuing to write the Group Risk Business). These processes were not successful.
On 5 September 2023, ILAL made a decision to stop writing new business because of the lack of ongoing investment. The decision resulted in a reduction to the forecast revenue position for the business. ILAL assessed that its forecasted capital position at 30 September 2023 would, as a result of the reduction in future cashflows, be below its prescribed capital requirement. This placed ILAL in a position of non-compliance with Prudential Standards LPS 110 Capital Adequacy and LPS 100 Solvency Standard, and in turn, in breach of s 230AAA of the Life Act.
ILAL entered into run-off for its Group Risk Business on 5 September 2023, and its retail advised business on 29 September 2023 when it ceased sales of new business. New sales of Medibank Policies ceased in April 2024. ILAL invoked its documented process for the run-off and administration of each of its portfolios (Run-Off Plan). ILAL reported its breaches of the Life Act to APRA and APRA issued directions to ILAL under s 230B(1) of the Life Act on 18 October 2023. These directions required ILAL:
(a)only to carry on life insurance business for the purpose of discharging liabilities arising under life policies issued on or before 31 October 2023 or, with APRA’s approval for existing contractual arrangements with certain business partners, life policies issued on or before 31 March 2024 (in effect, ILAL was prohibited from writing new business after these dates);
(b)to seek APRA’s written approval before making a reduction in its Capital Base or before making any payments to shareholders or related entities whether by dividend, interest or any other means; and
(c)to seek APRA’s written approval before transferring any asset of a Statutory Fund.
Under its Run-Off Plan, ILAL is working towards completing the run-off of its Retail Life Insurance Business by June 2025, or earlier if possible. This involves the transfer or transition of the various portfolios comprising ILAL’s Retail Life Insurance Business, the main purpose of which is to protect policy owners’ contractual benefits and to provide options for continuing their cover in light of ILAL’s deteriorating financial position. The proposed Scheme is an integral part of this run-off process.
The various arrangements for the run-off of the remaining business of ILAL (other than through the proposed Scheme) have been set out in detail in applicant’s evidence. They include transfer of the Medibank Policies, which have been transferred to Zurich Australia Limited under Pt 3 of the Financial Sector (Transfer and Restructure) Act1999 (Cth) (FSTR Act), with an effective date of 20 December 2024. Further, the twenty or so group life insurance and group salary continuance plans comprising the remaining portfolio of corporate group life business have either been transitioned to TAL Life or cancelled at the policyholder’s instruction. One in-force policy remains as part of the Five+ group life business, which is to be cancelled with effect on 28 February 2025.
ILAL is currently in the process of negotiating commercial arrangements with a number of life insurers for them to accept certain residual open claims and incurred-but-not-reported (IBNR) claims liabilities for ILAL’s corporate group life business. These arrangements are proposed to be effected by deeds of assignment that are to be approved by APRA under s 27A of the Life Act. These liabilities include about 271 open claims as at 31 December 2024. ILAL is also arranging transfer of any remaining claims exposure for each individual policy not transferred under the Scheme that relates to an out-of-force policy. The expected claims cost for these IBNR liabilities is close to nil.
Commercial negotiations to finalise these transfers are continuing. Two of the three insurers involved have provided indicative commercial terms which are not considered financially viable, and ILAL is working with these insurers on solutions to reduce their costs. ILAL remains confident that the transfers of these remaining liabilities can be effected by 30 June 2025, if not earlier.
The run-off process is being closely monitored by APRA. This is a necessary consequence of the directions that APRA has issued and some aspects of the transfer of the remaining business contemplate the exercise of powers by it.
Notwithstanding the risks associated with the breaches that have been reported to APRA, ILAL has performed an assessment of its solvency under the course of executing the Run-Off Plan. In particular, ILAL performs financial analysis of the expected remaining assets across IGHL (including the capital available in IGHL and ILAL) once the Run-Off Plan is complete. This is referred to as the Residual Capital Value (RCV). This analysis is performed monthly and is updated for actual experience, material changes in anticipated future experience of the policies and any other material changes to the Run-Off Plan. Mr Dermody has set out in the ILAL Actuarial Report an RCV analysis based on different scenarios:
(a)first, a “Baseline Scenario”, taking into account expected internal and external expenses, including those involved in transitioning the business and costs of the proposed Pt 9 transfer and the ultimate winding-up of IGHL; and
(b)second, a “Risk Scenario”, which involves longer time frames for the transfer of cover. Under this scenario, the transferring policies and corporate group life policies are assumed not to be transferred until August 2025 and September 2025 respectively.
The results of this detailed analysis are set out in tables 2 to 4 of the ILAL Actuarial Report, and show projected available assets at 30 June 2025 of $4.8 million in the Baseline Scenario and $1.5 million in the Risk Scenario. However, further analyses involving claims 20% and 50% higher than expected show negative RCV projections at 30 June 2025, ie a shortfall of assets. Mr Dermody states:
In summary the analysis indicates that ILAL is expected to meet its obligations to policy owners on the Baseline Scenario and the Risk Scenario if claims are expected. My overall view is that ILAL is not in a strong financial position to address the potential risks that may emerge.
In considering the impact of premiums under the Scheme, the current terms of the Integrity Policies contain a provision which permits the insurer to increase premium rates provided that 30 days’ notice in writing is given and the change takes effect from the next policy anniversary after the change is introduced. Each of the Ex-CUNA Policies specifically provides that “premium rates are not guaranteed”. As a matter of contract, the insurer thus has conditional rights to increase premium rates.
Under the proposed Scheme, transferring ILAL policy owners (except for Ex-QBE CCI policy owners, who pay one-off premiums at policy issuance) will be charged premiums based on the AIAA product features to which their policy has been mapped. For policies that pay annually, this will occur at their policy anniversary following the Transfer Date. For policies with monthly paying premiums, this will occur for the first monthly premium due following the Transfer Date. The Product Transfer Rules also provide for the type of premium structure to be applicable for the replacement AIAA policy premium.
While executing its Run-Off Plan, ILAL has deferred planned premium rate increases and has also received communications from its reinsurers of the need for further increases that would be required in 2025. However, as set out above, the RCP developed by the board of ILAL includes a plan to increase premiums of ILAL policies, if the Scheme does not proceed, on the first policy anniversary by a range of between 20% to 60%, and on the second policy anniversary, an increase in the order of 50% on the premium after the first-year increase. Those plans remain in place, but in view of the updated financial analysis, management has indicated increases would likely be at the higher end of this range.
Mr Dermody has included in the ILAL Actuarial Report an analysis of the average indicative rate increases that can be expected under the Scheme compared with ILAL’s current rates for both the Integrity Policies and the Ex-CUNA Policies. This modelling showed an average indicative increase of 22.3% for Integrity Policy owners and a reduction of 19.4% in relation to the premium rates of the Ex-CUNA Policies. More recent modelling now shows an average indicative increase of 38.9% for Integrity Policy owners. However, these analyses do not take into account the intended increases under the RCP if the Scheme does not proceed. When these increased rates are taken into account, Mr Dermody’s conclusion is that the premium rate increases that most Transferring Policy owners would face over the next two years with ILAL, are expected to be greater than the prospective premium increases under AIAA if the proposed Pt 9 transfer is confirmed. Mr Dermody confirms this key conclusion in his updating affidavit. Two further matters should be noted in connection with the application of premium rates under the Scheme.
First, AIAA will not apply any premium rate changes introduced during 2025 to its “Priority Protection” policyholders as a whole to the Transferring Policies. This means that ILAL Transferring Policy owners will be protected under the Scheme for any premium increases that are applied by AIAA in respect of its “Priority Protection” product.
Second, ILAL is planning to make a one-off ex gratia payment to Transferring Policy owners where the AIAA premium exceeds the current ILAL premium by more than 60%. This one-off ex gratia payment was considered reasonable to provide some temporary assistance to policy owners in managing the impact of large increases or to allow time to find alternative cover. It remains the intention of ILAL management and the ILAL board to make the ex-gratia payment if it has sufficient assets to make a solvency declaration for the winding up of ILAL after taking the payment into account. However, the updated estimate of this payment, the future claims experience, the outcomes of negotiations to transfer the remaining business, and the timing and operational costs in implementing the updated Run-Off Plan may affect ILAL’s ability to make the ex gratia payment.
Mr Dermody has expressed his conclusion on prospective premium changes under the Scheme as follows at [7.10] of the ILAL Actuarial Report:
As noted in Section 6.5 my overall conclusion is that the only viable approach to the Part 9 Transfer is to amend ILAL’s products to the premiums, terms and conditions of AIAA’s products (with the exception of the Ex-QBE CCI policies). Under the alternative without a Part 9 Transfer ILAL policy owners are expected to otherwise lose cover by February 2028 [now expected by November 2027] and ILAL’s capacity to meet policy owner benefits in full would be exhausted. Also, the premium rate increases that most Transferring ILAL Policy Owners would face over the next two years with ILAL are expected to be greater than the prospective premium increases under AIAA if the proposed Part 9 Transfer is confirmed.
The following points are noted based on the above discussion and analysis in this section:
ŸIt is noted that a number of Transferring ILAL Policy Owners will face a significant increase in premiums. For policies that pay premiums annually this will occur at their next policy anniversary following the Transfer Date. For policies with monthly paying premiums this will occur for the first monthly premium due after the Transfer Date.
ŸTransferring ILAL Policy Owners with a premium increase will be provided communication setting out their options for managing the increase. As noted above the proposed Part 9 Transfer does not obstruct policy owners from obtaining cover from another life insurer. In particular, policy owners who are healthy and are able to find alternative cover are free to cancel their policy and take out a policy with another life insurer if they consider an alternative life insurer’s product with its premium rates and benefit is more suitable to them than those under the AIAA product.
ŸTransferring ILAL Policy Owners who are unhealthy will have their cover continue with the AIAA policy they have been mapped to. Unhealthy lives face difficulties seeking cover from an alternative insurer as if they applied for cover with another insurer they would either be declined cover entirely, be provided cover but with additional exclusions and/or with a higher underwriting loading.
ŸAll policy owners, i.e. policy owners who are able to find alternative cover and those unable to find alternative cover, have the option to reduce the level of benefits under the AIAA product to manage the impact of premium rate increases.
Even if ILAL is unable to make the ex gratia payment, Mr Dermody maintains his conclusion that the Scheme is in the interest of ILAL policy owners as a whole. On this issue he says at [29] of his second affidavit:
In short, I do not consider that the withdrawal of this ex-gratia benefit, while regrettable, would be a reason for not otherwise proceeding with the proposed Part 9 Transfer with its benefits to ILAL Policy Owners as whole. If the ex-gratia payment is not able to be made, all affected Transferring ILAL Policy Owners will be treated the same in that they will all have their premiums based on the AIAA product premium rates.
Mr Goodsall gives consideration to the changes in premiums consequent upon the Scheme at [6.3] of the Independent Actuarial Report. He notes that when considering the impact of the change in terms and conditions and premium rates, it is relevant to consider the position if the proposed transfer does not go ahead rather than the current position. He observes that all Transferring Policies are expected to receive total premium increases in the next two years in the order of 80% to 140%, with a very high likelihood of further premium increases and all cover ceasing within about three years. He gives consideration to the premium rate change analysis that has been performed by Mr Dermody (and referred to above) and states:
While these conclusions are based on average results and the results for individual Policy Owners may be different to the average, they indicate that the general level of premiums for AIAA products is lower than that necessary for ILAL to continue operations, and the results for individual policy Owners reflects the differences in assumptions and/or experience of AIAA compared to ILAL as well as, in some cases, different benefits under the AIAA products.
Mr Goodsall notes that Transferring Policy owners will receive a notice about the Scheme in December 2024, information on proposed premium changes at least 30 days prior to the Transfer Date and a welcome pack with their policy documentation after the Transfer Date as well as several options for contacting AIAA to enquire about their policy. He considers this is important to enable them to make a choice as to whether to continue with their policy, seek a different product from AIAA, seek alternative cover from another insurer or to discontinue their policy and forgo any future insurance. Mr Goodsall ties his conclusion on the changes to premium rates with the changes to the policy terms and conditions which are set out above.
Mr Goodsall considers that even if ILAL is unable to make the ex gratia payment, his conclusion is that the Scheme is in the interest of ILAL policy owners as a whole. He states at [14] of his second affidavit:
While affected Transferring Policy Owners will be disadvantaged if the payment is delayed or not made in full, as the ex-gratia payment is not part of the Scheme, it was not an essential consideration in forming my opinion and I consider the completion of the Proposed Transfer of the Scheme is of more importance to the overall benefit security and delivery of policy owner benefit expectations than the possible withdrawal of the ex-gratia payment.
Remaining policy owners
Naturally, the terms and conditions of the policies of the remaining policy owners will not be changed under the Scheme; they stand outside of it. However, having regard to the financial and capital position in ILAL, the security of the benefits of policy owners referable to the remaining business may be impacted by the Scheme. This is because if the Scheme does not proceed, the costs of maintaining the transferring business will need to be absorbed by ILAL and the remaining policy owners may be affected by adverse claims experience of the transferring business. Further, the costs associated with the Scheme (of approximately $4m) will reduce IGHL’s net asset position.
For the remaining ILAL business, ILAL has liabilities in respect of past claims for IBNR, open income protection and group salary continuous claims (where these have not been transferred). ILAL will also incur future liabilities in respect of cover it continues to provide for Group Risk Business that has not yet terminated.
The progress of the various transfers and transitions for the remaining business of ILAL has been set out above. The remaining business now comprises:
(a)One in-force policy under the Five+ group life business, where a cancellation notice is to take effect by the end of February 2025;
(b)IBNR claims liabilities and open claims for its corporate group life business, where the in-force policies have either been transferred, cancelled or lapsed. ILAL is in the course of negotiating commercial arrangements with a number of life insurers which are to be effected by deeds of assignment to be approved by APRA under s 27A of the Life Act; and
(c)any remaining claims exposure for individual policies not transferred through the Scheme that relate to out-of-force policies. ILAL has engaged a life insurer to take on the IBNR claims. The expected claims cost is close to nil for these liabilities. These liabilities are also expected to be assigned under s 27A of the Life Act.
Some of the indicative terms of the commercial arrangements for the open claims and IBNR liabilities require further negotiation as the indicative terms provided are not viable. ILAL expects to be able to agree terms for the transfer of the remaining business by 30 June 2025.
As Mr Dermody confirms, ILAL expects to have sufficient assets to transfer under the various arrangements proposed for the remaining business, as well as the assets required to transfer under the proposed Pt 9 transfer, including meeting the anticipated costs associated with the Scheme. However, there remains a risk that ILAL may not be able to come to timely or suitable terms with receiving insurers.
Mr Goodsall considers that the Scheme will have a positive impact on the benefit security of the remaining policy owners:
The Proposed Transfer will also enhance, but not necessarily ensure, the benefit security of the Remaining Policies until they can be transferred to another insurer as the significant drain on assets of the administration expenses of the Retail Business will rapidly diminish.
In his second affidavit Mr Goodsall observes at [22]:
The reduction in RCV is unfortunate but not outside the reasonable range of likely outcomes and reinforces the need to complete the Proposed Transfer and the transfer of the Remaining Policies as soon as possible, and that the Proposed Transfer is in the interests of both the Transferring and Remaining Policy Owners.
Mr Dermody posits a very strong linkage between confirmation of the Scheme and the interests of policy owners referable to the remaining business. Barring unexpected adverse developments, after the proposed Pt 9 transfer has occurred and the arrangements for transferring remaining ILAL policies are implemented, the remaining policy liabilities benefits will be secured by a life insurer that meets regulatory requirements. However, if the Pt 9 transfer is not confirmed, Mr Dermody considers it very unlikely that ILAL will be able, with its limited assets, to successfully undertake a transfer of the remaining policy liabilities on or within 3 months of 1 March 2025. Mr Dermody presents this very bleak picture:
Absent a Part 9 and any viable alternative arrangements for the transfer of the Transferring ILAL Policies and the Remaining ILAL Policies, there is an increased likelihood that each of APRA and ILAL may form the view that ILAL’s remaining liabilities cannot be extinguished as and when they become due. Consideration will need to be given to other options, including seeking a winding up of ILAL. This is because ILAL’s current costs of operating the business are not covered by revenue as noted in Section 2.12, and without a Part 9 ILAL is expected to exhaust its capacity to meet policy owner benefits in full by February 2028 [now expected to be November 2027].
Reinsurance
The retail advised business and Ex-QBE CCI Policies to be transferred under the Scheme are reinsured under two main categories of reinsurance:
(a)the Integrity Policies are reinsured with RGA in respect of business written after 11 April 2022, with HLRA covering business up to and including 11 April 2022; and
(b)the Ex-QBE CCI Policies and Ex-CUNA Policies are reinsured under legacy arrangements with HLRA and Munich Reinsurance Company of Australasia Limited.
The RGA and HLRA reinsurance treaties covering liabilities under the Integrity Policies are to be transferred to AIAA (see cl 4.11 and Sch 4 of the Scheme). The parties are in the process of executing amendments to both these treaties that:
(a)increase the retention level to AIAA’s preferred level, reducing the level of reinsurance on future claims; and
(b)amend the premium rates to reflect the revised retention.
The legacy reinsurance treaties are not proposed to be transferred under the Scheme and will be terminated prior to the Transfer Date. The actuarial evidence is to the effect that the reduction in the level of reinsurance for future claims for Transferring Policies is appropriate given the greater size of the AIAA portfolio and the amount of capital of AIAA. As Mr Goodsall observes, the significantly greater size of the AIAA portfolio means that the claims experience of AIAA will be much less volatile than that of ILAL, reducing the need for, and cost of, reinsurance.
Remediation
At the time of the dispensation hearing, ILAL had been administering four open customer remediation programs for the Transferring Policies. Three of the four have now been completed, with the last expected to be concluded by the end of February 2025.
Mr Katon gives evidence that ILAL is not currently subject to any class actions or any regulatory proceedings and is not aware of any potential class actions or regulatory proceedings that are in contemplation or which have been threatened.
AIAA also has the benefit of contractual indemnities from ILAL and IGHL.
Responses from policy owners
ILAL and AIAA policy owners have been given notice of the Scheme through the various channels required by the Dispensation Orders as set out above. Almost all ILAL Transferring Policy owners were provided with a Scheme Summary, either by email or by post. AIAA has also made available comparative flyers which summarise the changes to the covers of the Integrity Policies and Ex-CUNA Policies.
In addition, ILAL and AIAA have sent notice to the Integrity Policy owners and Ex-CUNA Policy owners, who will be the subject of premium changes when the Scheme takes effect. This correspondence was sent between 24 and 31 January 2025.
The Dispensation Orders required the establishment of dedicated email addresses to receive enquiries about and complaints or objections to the Scheme. As at 16 January 2025 the ILAL email address had received 27 emails. Twenty-four of these emails received by ILAL related to either requests to update email addresses or advisers communicating with clients and copying the ILAL email address into their emails. Three emails raised questions or concerns about the post-transfer position of policies, pricing and the timing of the policy owner communications that was made. As at 16 January 2025 the AIAA email address received three emails from two different advisers, raising general questions regarding the post-transfer position or policy terms and benefits for their clients.
Both ILAL and AIAA also established telephone call centres under the Dispensation Orders. The ILAL telephone call centre received nine calls. The majority of these callers asked questions about the terms of their policy cover after the transfer or commented on their perceptions of AIAA’s pricing or the timing of policy owner communications being sent. No calls were received by the AIAA telephone call centre.
Neither ILAL nor AIAA have received any enquiries through the online enquiry forms which could be accessed from the dedicated webpages which have been live since 18 December 2024.
Neither ILAL nor AIAA has received any notice from a policy owner objecting to the Scheme or any notice from such a policy owner intending to appear and make submissions at the confirmation hearing. No policy owner appeared at the confirmation hearing. Given the widespread notice and publicity of the Scheme, this is a significant matter in favour of exercising the Court’s discretion to confirm the Scheme.
Position of APRA
APRA has closely supervised the progress of the proposed Scheme and the transferring and transition of ILAL’s remaining business. Following the issue of directions by APRA to ILAL in October 2023, ILAL has been in regular contact with APRA to discuss the progress of ILAL’s Run-Off Plan including the proposed Scheme. APRA has continued to supervise the run-off of ILAL’s remaining business and has exercised or is prepared to exercise its powers under the FSTR Act and the Life Act to facilitate the transfer of aspects of ILAL’s remaining business. APRA has been provided with drafts of the Scheme Documents including drafts of the actuarial reports and the applicants have consulted with APRA in relation to the forms of communications to policy owners and compliance with the Dispensation Orders.
It is apparent from the provisions of the Life Act and the Life Regulations that APRA is a significant participant in the process of confirmation of schemes of transfer: see Royal & Sun at [24]. APRA has exercised its entitlement to be heard on the application (s 193(3) of the Life Act). APRA is charged with ensuring that the interests of policy owners are protected, and APRA operates “as something of a watchdog in relation to transfers under Part 9 of the Act”: Colonial Portfolio Services Ltd v Australian Prudential Regulation Authority [1999] FCA 1779; (2000) 11 ANZ Insurance Cases 90–103 at [28].
APRA was separately represented at the confirmation hearing and supports the confirmation of the Scheme for the reasons advanced in its written submissions.
Conclusion: the Scheme should be confirmed
ILAL is in breach of applicable prudential capital requirements and its capacity to meet policy owner benefits in full is now expected to be exhausted by November 2027 in the event that the Scheme does not proceed and no other opportunity to transfer the business arises. No alternative opportunities for transfer emerge from the evidence. Under ILAL’s RCP, very significant premium increases are planned in the next two years in the event that the Scheme does not proceed, reflecting in part that adjustments to premiums have been deferred while the business is in run-off.
Integrity Policy owners and Ex-CUNA Policy owners will have their rights and benefits under their existing policy replaced by the equivalent or nearest equivalent rights and benefits under the AIAA “Priority Protection” policy wording, and their premiums adjusted accordingly. These changes are regulated under the Scheme by the Product Transfer Rules which were designed to minimise the loss of benefits and cover in a principled and careful way within the constraints of the commercial context in which AIAA was prepared to receive the transferring business.
The changes to policy terms and conditions and premium rates may be disadvantageous to some policy owners either because of the loss or reduction of benefits, or because of significant increases in premiums, or both. However, such adverse impacts should, as a matter of principle, be assessed having regard to the circumstances giving rise to the Scheme and to the position if the Scheme does not proceed. There is no authority that constrains the exercise of discretion under s 194 of the Life Act to confirm a Scheme because it may have an adverse impact on some policy owners. There is also no such constraint contained in the broad discretion conferred under Pt 9 of the Life Act; rather, as explained above, policyholder interests are to be considered in the context of a viable, competitive and innovative life insurance industry, where from time to time, some businesses may not thrive or survive.
The United Kingdom authorities (referred to above) acknowledge that the adverse impact of a scheme on some policyholders is not a bar to the confirmation (“sanction”) of a scheme, especially where the transfer is a business rescue. Transferring Policy owners under the Scheme are treated fairly as a whole because where AIAA has required the replacement of terms and conditions, all of those policy owners (ie owners of Integrity Policies and Ex-CUNA Policies) are to have their terms and conditions and premiums replaced and premiums adjusted in accordance with the Product Transfer Rules to align as closely as possible to AIAA’s “Priority Protection” product. The replacement of some Transferring Policies was the only viable way in which the proposed transfer could occur, while recognising that the Scheme and the Product Transfer Rules are the product of commercial negotiation between the parties.
Moreover, the actuarial evidence is to the effect that the Scheme is in the interests of policy owners as a whole, and that such adverse impacts by loss or reduction of rights or the increase of premiums are acceptable in the circumstances. This is largely because, if the Scheme does not proceed, ILAL policy owners are expected to lose their benefits in the near future (by November 2027), and because the premium increases under the RCP are, in general, greater than those which can be expected if the Scheme is confirmed. Healthy policy owners will have the opportunity to find alternative cover in the market, if they desire or are so advised. Unhealthy policy owners, for whom these opportunities are not available or may be costly, at least have their core benefits secured with a large and well capitalised insurer. Transferring Policy owners with advantageous legacy products will have their core benefits transferred where those products may not be generally available in the market. Significantly, the benefit security of all Transferring Policy owners will be materially improved as policy owners of AIAA.
As Mr Potts SC, who appeared for AIAA, neatly encapsulated the matter:
This Scheme is of course unusual, in that in certain respects, ILAL policyholders will be detrimentally affected by the Scheme. It is however clear, that overall, given a comparison between their position if the Scheme is not confirmed and the transfer does not proceed, with their position under the Scheme if the transfer occurs, looked at holistically, all ILAL policyholders will be better off overall if the Scheme is confirmed.
The run-off of the remaining business of ILAL is now well progressed. The limited number of policy owners referable to the remaining business of ILAL are better off if the Scheme is confirmed because they will not be subject to the potential for further adverse claims experience and the expenses of operating the transferring business, and because the prospects of execution of the transfer or transition of the remaining business are enhanced from a solvency and regulatory perspective.
As Mr Goodsall has observed, the reduction in the RCV of ILAL reinforces the need to complete the transfer proposed under the Scheme and the transfer of the remaining policies as soon as possible, and the Scheme is in the interests of both the transferring and remaining ILAL policy owners.
Given the scale of the business to be transferred, and the fact that there are no changes to the terms and conditions of any AIAA policies as a result of the Scheme, there are no adverse impacts of the Scheme on AIAA policy owners.
The Scheme Summary has been provided to ILAL Transferring Policy owners and the Scheme generally has been the subject of notification under the Dispensation Orders, including to the financial advisers of ILAL policy owners. AIAA has notified ILAL policy owners of impending premium increases. Notwithstanding these communications and the publicity of the Scheme, no policy owner, or anyone on their behalf, has made any objection to the Scheme or sought to be heard in opposition to its confirmation by the Court.
Further, APRA which has closely supervised and facilitated the run-off of ILAL, and which has been involved in the preparation of the Scheme and its notification, supports the confirmation of the Scheme on the basis of the detailed reasons advanced in its written submissions.
Accordingly, it is appropriate to exercise the discretion under s 194 of the Life Act to confirm the Scheme without modification and to make orders in the form proposed by the parties.
Finally, I wish to acknowledge my gratitude to counsel, solicitors, actuaries and lay witnesses involved in this matter for the way in which they have discharged their different responsibilities. The Scheme is complex, and raises some novel issues in terms of Australian case law. In particular, the written submissions by Mr Hollo SC (who appeared for ILAL), Mr Potts SC (who appeared for AIAA) and Ms Lyons (who appeared for APRA) exposed in a lucid and candid way the problematic features of the Scheme and the ways in which the parties have overcome them. My own task has been greatly assisted by the admirable way in which the matter has been presented and argued.
I certify that the preceding one hundred and fifty (150) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Jackman. Associate:
Dated: 19 February 2025
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